An IVA (Individual Voluntary Arrangement) is a popular way of escaping debt. But can you apply for an IVA in Scotland? And if you do, what will happen to your home?
Individual Voluntary Arrangements (IVAs) are running at their highest levels since they were introduced in 1987, with last year’s rise the 4th in a row. As government figures show almost 80,000 IVAs were approved last year, could you use an IVA as a route out of debt? And what would happen to your home if you did?
If I get an IVA, do I have to sell my home?
Unlike bankruptcy, you wouldn’t usually lose your home in an IVA. If you’re already renting when the IVA begins, your landlord won’t be told about the IVA so as long as you keep paying the rent there should be no issue. If you own your home you might be required to remortgage it to release equity so the IVA company can pay your creditors (that is, the people and organisations to whom you owe money).
There is, of course, a problem with that strategy. If you’re in an IVA it would be very unusual for a lender to accept a new application for credit.
What happens if I can’t remortgage?
If you have more than £5,000 equity in your home (equity is the difference between the value of your home and the amount you still owe on your mortgage) your IVA will be extended from the standard five years to six. During the final year, your payments will cover a proportion of the money you would otherwise have raised from remortgaging.
If you have less than £5,000 equity in your home, or if you are in negative equity, you won’t be expected to remortgage or extend your IVA.
Can an IVA company choose to leave my home out of an IVA?
Yes, but that’s unlikely to happen.
Can I move to new rental accommodation when I’m in an IVA?
Possibly, but a new tenancy agreement is likely to mean a fresh credit check and your IVA will be a red flag to any prospective letting agent. There are ways around this. Being upfront about your IVA (rather than letting the agent find out from the credit check) might help. Offering to pay a number of months’ rent in advance may also help, although that can be a big challenge when you’re already in an IVA.
Even if you can get the landlord or letting agent to agree to you as a new tenant, any increase or decrease in rent will affect the amount you pay towards your IVA so you’ll need to reach agreement with your IVA company before you agree to move.
Can I sell my house whilst I’m in an IVA?
Technically yes, but unless you absolutely have to it’s probably wiser to wait until your IVA is completed.
That’s because IVA companies are required to recoup as much of the money you owe to creditors as possible. As long as equity is locked in your home, there are only limited powers to release or replace some of it (see If I get an IVA, do I have to sell my home? above). If you sell your home whilst still in an IVA, however, your IVA company can take up to 85% of the equity.
That may, depending on the amount of equity in your home, leave you with enough for a deposit on a new home, but remember your chances of getting a new mortgage will be slim. Your IVA will remain on your credit history for six years from the date it was approved. Until it disappears from your record it will continue to act as a warning to lenders.
Can I sell my home after an IVA?
Yes, once your IVA is complete (after five years, or six if you’re compensating for equity payments) your home is yours to do with as you wish.
Ensure you have your certificate of completion so you can prove that no creditors will continue to chase you for payments. Then, you can start focusing on rebuilding your credit rating so that, over time, you increase your chances of mortgage approval. You can find out more about that here.
What happens if I inherit property during an IVA?
Property you inherit whilst in an IVA will be treated as an ‘after-acquired asset’, that is, an asset you gained after the start of your IVA. Your IVA will likely include a ‘windfall clause’ that ensures any after-acquired asset can be used to pay off your debts.
Any property you inherit will be sold and the proceeds offset against the debt. If the value is enough to cover the total value of the debt plus fees and interest, your IVA will be completed and any surplus money will be repaid to you. If it doesn’t cover the full amount, the IVA will continue as normal.
Can I get an IVA in Scotland?
No. An IVA in Scotland is a debt management tool for anyone with debts over £6,000 (£12,000 in Northern Ireland) who live elsewhere in the UK. If you are a Scot living in England, Wales or NI you can apply for an IVA.
But if you live in Scotland, you’ll need to apply for a Scottish trust deed (also known as a protected trust deed) which is similar, although not the same, as an IVA. You can explore the differences between IVAs and trust deeds here.
Will a Scottish trust deed treat my home in the same way as an IVA?
It will be dealt with in a very similar way. Just as with an IVA, a protected trust deed will hand control of your assets – including your home – to someone else. In Scotland it’s a trustee; elsewhere it’s an IVA company. As with an IVA, a trust deed doesn’t mean your house will need to be sold, but there is a requirement to recover as much as possible for creditors.
If there’s equity in your home the trustee may require you to:
- Remortgage: Although as with an IVA, there’s an acknowledgment that this is unlikely to be successful in most cases.
- Make extra payments: Just as an IVA company can add an extra year to your payments, so a trustee can add to the four years of your trust deed to repay some of the equity that would otherwise be released from selling your property.
- Sell your property: This is unlikely to be forced upon you but it can remain a voluntary option. If you choose to sell and you are a co-owner, the other party will keep their share of the equity.
- Third party payment: Your partner or another third party could pay your equity contribution as a lump sum.
What happens if there’s no equity in my home?
If there is no equity in your home or you are in negative equity, you won’t be asked to make an equity contribution. The same may also apply if you have only a small amount of equity in your home. The figure used in Scotland is often – although not always – £5,000.
What happens if I don’t stick to my IVA or trust deed?
If you don’t meet the terms of your IVA or trust deed any arrangements regarding your home will fall and you’ll likely face bankruptcy proceedings (sequestration in Scotland).
Under bankruptcy rules, you may lose your home.
Escape debt and protect your home
According to the last set of Accountant in Bankruptcy annual figures, more than 7,000 Scots had their protected trust deeds successfully concluded in 2017/18.
Are IVA’s a government backed scheme?
IVA’s were introduced in 1986 and form part of the Insolvency Act (1986) to help people who are struggling to pay their debts. Unlike debt management, they are a legislated and formal debt solution meaning that the IVA agreement is legally binding, which can help to eliminate harassment from creditors.
Will I lose my home in an IVA?
Unlike bankruptcy, you wouldn’t usually lose your home in an IVA. If you own your home and have equity you may be required to release it so the IVA company can pay your creditors (that is, the people and organisations to whom you owe money). Read more here.
Will an IVA affect my credit rating?
Your credit rating will be affected whilst on an IVA and will stay on your credit file for up to 6 years. Any debt solution will affect your credit rating, but at the same time if you’ve missed payments and defaulted then your credit file will be affected anyway, as a default also stays on your file for up to 6 years. Read more here.
Do I need to know who I owe before I apply for an IVA?
It’s not a problem if you cannot remember all the people you owe money to before you apply for an IVA. A lot of people forget as they may have been taken out a long time ago. We have systems which can find all your debtors.
How much debt can I write off with an IVA?
The amount of debt that can be written off with an IVA very much depends on personal circumstances, such as your current employment status, debt level and disposable income. The maximum is 90% of unsecured debt but the average is around 60%.
How can I apply for an IVA?
There are 4 ways to apply for an IVA. 1: Call us on 0800 193 1024. 2: Apply online here. 3: Chat with us on live chat. 4: Apply through our Facebook page. The IVA application process is very simple and can be setup in as little as 24 hours. The speed usually depends on how quickly you can get information to us.
I’m thinking about an IVA. But what happens if I have no money spare at the end of the month?
It’s still worth exploring options with a debt management professional. They may be able to help you make your budget stretch further. If not, they will be able to give you advice about which is the right debt solution tool for you. That could be an IVA (in England, Wales or NI) or a protected trust deed (in Scotland) but there are several other potential options.
What happens if my circumstances change?
Talk to your IVA insolvency practitioner. They may be able to get agreement from creditors to a temporary reduction in payments or a longer repayment period to help you over a difficult period.
Why is my bank taking money from my account to pay my debts?
Banks hold an automatic ‘right to offset’. This means that if you have money in a bank account and unpaid loans or credit cards with the same lender, they can take the money in the account to pay off the debts. More confusingly, this can also happen when the debt is owed to a company also owned by your bank.
So, for example, if your bank account is with HSBC and you have an unpaid credit card with M&S Bank or First Direct, a right to offset could be used to pay those debts, because HSBC owns all of them.
You can find more about which banks are subsidiaries of other banks here.
In an IVA, and to avoid the right to offset, you may be required to switch bank accounts.
Will an IVA affect my credit rating?
Yes. The record of the IVA will remain on your credit file for six years from the date the IVA begins.
Will I still be able to get credit with an IVA?
Getting credit is harder with an IVA. If you want more than £500 of credit you’ll need permission from your insolvency practitioner in most circumstances. The chances of credit being approved are less, and any credit you are able to secure is likely to cost more.
Bear in mind, however, that an IVA (and a Scottish trust deed) is designed to help you escape debt, not find new sources of it.
If I choose an IVA, do I have to deal with my creditors directly?
No. In fact, you can’t set up an IVA without an insolvency practitioner who will handle all the to-ing and fro-ing between creditors. Assuming you qualify in other ways (see above) that makes an IVA ideal if you’d rather not speak to your creditors.
Discover how you could escape debt without losing your home. Talk to us now.
- Apply For An IVA
- Is An IVA Worth It?
- Are IVAs a Government Scheme?
- What If I Can’t Pay My IVA?
- Can I Get An IVA If I’m Self Employed?
- Rebuilding My Credit Rating After An IVA
- IVAs: What Will I Need To Show My Insolvency Practitioner?
- Who’s Most Likely to Need an IVA?
- How Much Does An IVA Cost?
- Can I Afford An IVA?
- IVAs – Can I Lose My Home?
- IVA And Trust Deeds | Whats The Difference?
- How Will My IVA Affect My Parents?
- An IVA Mythbuster
- Can An IVA Be Rejected?
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here